United Rentals (URI) – Covered Call Trade


 Look at the December 22 covered call. For each 100 shares of United Rentals (URI) stock you buy, sell one December 22 covered call option for a 20.46 (24.81 – 4.35) debit or better. That’s potentially a 7.5% assigned return.

The technicals for URI are bearish with a weak downward trend. The stock is under accumulation with support at 21.98. S&P rates this stock 5 STARS (out of five) – strong buy.

RISK:  The stock has to drop 17.5% to threaten the breakeven point. This trade rates 4 keys out of 5 – low relative risk.

S&P reiterates strong buy opinion on shares of United Rentals (URI) .  Q2 operating EPS of $0.40, vs. $0.18, is a penny below our estimate and misses consensus of$0.44 from Capital IQ. Rates and time utilization continued to improve, which we find encouraging. URI expects its operating environment to remain robust for the rest of the year. We have raised our ’11 and ’12 EPS estimates to $1.46 and $3.09 from $1.33 and $2.95. However, on lagging improvement in non-residential construction, we trim our 12-month target price to $44 from $50, 14X our ’12 EPS estimate, towards the high end of URI’s historical P/E range.

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